OPERATION MANAGEMENT

UNIT –I (7 sessions) Production Concepts: Introduction, meaning, nature and scope of production and
operations management. Difference between production and operations management. Productivity, factors
affecting productivity and productivity measurement. Work study— Method study and work measurement.
Production Technology – Types of manufacturing processes. Plant location and types of plant layout.

UNIT –II (8 sessions) Operations Concepts: Services scenario in India, difference between product and service,
characteristics of services, classification of services, product and service design, factors affecting service
design, service designing process, service blueprinting, service capacity planning. Dimensions of quality in
services, understanding service quality gap, measuring service quality using SERVQUAL model. Case Studies

UNIT-III (10 sessions) Material and Inventory Management: Types of production planning, process of
production planning and control (PPC) – routing, scheduling and loading. Master production schedule,
aggregate production planning. Types of inventories, inventory control techniques- EOQ, ABC, VED, FSN,
HML and SDE (Simple numerical problems on Inventory control techniques). Just-in-time (JIT) and
KANBAN. Case Studies

UNIT-IV (8 sessions) Supply Chain Management: Overview of supply chain management, conceptual model of
SCM, supply chain drivers, measuring supply chain performance, core and reverse supply chain, global supply
chain, inbound and outbound logistics, Bullwhip effect in SCM, push and pull systems, lean manufacturing,
agile manufacturing, role of IT in SCM. Demand forecasting in supply chain— Simple moving average method,
weighted moving average method, linear regression and exponential smoothing method. Case Studies

UNIT-V (7 sessions) Productivity and Quality: TQM, Deming‘s 14 principles, Juran‘s quality triology, PDCA
cycle, KAIZEN, quality circles, 7QC tools and its 7 new management tools, ISO 9000-2000 clauses, six sigma,
Total Productive Maintenance (TPM), 5S. Case Studies

1
UNIT –I Production Concepts: Introduction, meaning, nature and scope of production and operations
management. Difference between production and operations management. Productivity, factors affecting
productivity and productivity measurement. Work study— Method study and work measurement. Production
Technology – Types of manufacturing processes. Plant location and types of plant layout.

INTRODUCTION
The set of interrelated management activities, which are involved in manufacturing certain products, is called as
production management. If the same concept is extended to services management, then the corresponding set
of management activities is called as operations management.
PRODUCTION
Production is defined as ―the step-by-step conversion of one form of material into another form through
chemical or mechanical process to create or enhance the utility of the product to the user.‖ Thus, production is a
value addition process. At each stage of processing, there will be value addition.
Production may be defined as conversion of inputs-men, machine, materials, money, methods and management
(6Ms) into output through a transformation process. Output may be goods produced or services rendered.
PRODUCTION MNAGEMENT
Production management is a process of planning, organizing, directing and controlling the activities of the
production function. It combines and transforms various resources used in the production subsystem of the
organization into value added product in a controlled manner as per the policies of the organization.
According to E.S. Buffa defines production management as, “Production management deals with decision
making related to production processes so that the resulting goods or services are produced according to
specifications, in the amount and by the schedule demanded and out of minimum cost.”

OBJECTIVE OF PRODUCTION MANAGEMENT

The objective of the production management is ‗to produce goods services of right quality and quantity at the
right time and right manufacturing cost‘.
1. RIGHT QUALITY: The quality of product is established based upon the customers‘ needs. The right
quality is not necessarily best quality. It is determined by the cost of the product and the technical
characteristics as suited to the specific requirements.
2. RIGHT QUANTITY: The manufacturing organization should produce the products in right number. If
they are produced in excess of demand the capital will block up in the form of inventory and if the quantity
is produced in short of demand, leads to shortage of products.

2
3. RIGHT TIME: Timeliness of delivery is one of the important parameter to judge the effectiveness of
production department. So, the production department has to make the optimal utilization of input resources
to achieve its objective.
4. RIGHT MANUFACTURING COST: Manufacturing costs are established before the product is actually
manufactured. Hence, all attempts should be made to produce the products at pre-established cost, so as to
reduce the variation between actual and the standard (pre-established) cost.
OPERTIONS MANAGEMENT
Operations Management is the conversion of inputs into outputs, using physical resources, so as to provide the
desired utility/utilities of form, place, possession or state or a combination there-off to the customer while
meeting the other organizational objectives of effectiveness, efficiency and adaptability.
It distinguishes itself from other functions such as personnel, marketing, etc. By its primary concern for
‗conversion by using physical resources‘. There should be a number of situations in either marketing or
personal or other functions, which can be classified or sub-classified under Production and Operations
Management. For example,
(a) The physical distribution of items to the users or customers,
(b) The arrangement of collection of marketing information,
(c) The actual selection and recruitment process,
(d) The paper flow and conversion of data into information usable by the judge in a court of law, etc.
SCOPE OF PRODUCTION AND OPERATIONS MANAGEMENT
Production and operations management concern with the conversion of inputs into outputs, using physical
resources, so as to provide the desired utilities to the customer while meeting the other organizational objectives
of effectiveness, efficiency and adoptability. It distinguishes itself from other functions such as personnel,
marketing, finance, etc., by its primary concern for ‗conversion by using physical resources.‘ Following are the
activities which are listed under production and operations management functions:
1. Location of facilities
2. Plant layouts and material handling
3. Product design
4. Process design
5. Production and planning control
6. Quality control
7. Materials management
8. Maintenance management.

.
PRODUCTION MANAGEMENT V/S OPERATIONS MANAGEMENT
A high-level comparison which distinct production and operations management can be done on following
characteristics:
3
1. Output: Production management deals with manufacturing of products like (computer, car, etc) while
operations management cover both products and services.
2. Usage of Output: Products like computer/car are utilized over a period of time whereas services need to
be consumed immediately
3. Classification of work: To produce products like computer/car more of capital equipment and less labour
are required while services require more labour and lesser capital equipment.
4. Customer Contact: There is no participation of customer during production whereas for services a
constant contact with customer is required.
Production management and operations management both are very essential in meeting objective of an
organization.
WORK STUDY
Work study is the most effective tool in the hands of management for productivity improvement on the shop
floor. It is the study of work of workers in all aspects in order to increase productivity. It is a systematic and
analytical study of work process and work methods with the objective of increasing efficiency and reducing
costs.
Definition
The work study may be defined as follows:
1. Work study is a systematic, objective and critical examination of all the factors governing the operational
efficiency of any specified activity in order to effect improvement in productivity.
2. Work study is a term used to embrace the techniques of method study and work measurement (discussed in
next article), which are employed to ensure the best possible use of human and material resources in
carrying out a specified activity.
Objectives of Work Study
Work study concerns itself with better ways of doing things. There is control over the output by setting
standards with respect to time. Work study is designed to achieve the following objectives:
1. Maximum use of plant and equipment.
2. The most effective use of human work.
3. Provide more and improved physical means to motivate the workers.
4. Improve the basic process by research and development.
5. Improve the methods of operation.
6. Establishment of standards for measuring performance.
7. Improve organization product, planning and control.
8. Improve manpower efficiency at all levels.
Basic Procedure for Work Study
The basic procedure of work study consists of the following steps :
1. Define the problem: The first step is to select the job or process or the operation to be studied.
2. Record: The purpose is to obtain all relevant facts. The relevant facts include job or process or operation
using suitable charting techniques such as operation process chart, flow process chart, flow diagrams and
other relevant charts.
3. Examine: Critically examine all recorded facts associated the problem.
4. Develop: Consider the alternative methods and decide which one is the best.
5. Measure: Establish the standard time using an appropriate work measurement technique. Install the new
method as standard practice.
6. Maintain: The new method for the job/process/operation.
Benefits of Work Study
1. Increased productivity and operational efficiency
2. Reduced cost of production
4
3. Improve plant layout
4. Better man power planning and capacity planning
5. Fair wages to workers
6. Better working conditions to employees.
7. Reduced material handling costs
8. Provides a standard of performance to measure labour efficiency.
9. Better industrial relations and employee morale
10. Basis for suitable incentive schemes and provides better job satisfaction to employee.
Techniques of Work Study
There is a fixed and ordered sequence of analysis used in all work study exercise. It consists of two categories
of activities:
1. Method-study: It is concerned with "the way in which work is done (i.e., method)". It is used to simplify
the way to accomplish a work and to improve the method of production. Method-study results in a more
effective use of material, plant, equipment and manpower. It employs a systematic approach involving
Select-Record-Examine-Develop-Define-Install-Maintain. We will discuss this in more in detail subsequent
article.
2. Work-measurement: It is concerned with the value or work-content of the task itself (i.e., measurement). It
is used to determine how long it should take to carry out the job. It also provides a yardstick for human
effort. Work-measurement results in making possible an improved planning and control and providing a
basis for sound incentive scheme. It employs a systematic approach involving: Select-Break jobs into
elements-Measure-Compile the standard time and Relate time. This is also discussed in detail in subsequent
articles.
PRODUCTIVITY
Productivity is defined as the ratio of output to input of a production system, i.e.,
Output
Productivity =
Inputs
Productivity of a production system is similar to the efficiency of a machine. Therefore, productivity is an
efficiency of the production system. Just as it is desired to increase the efficiency of a machine, it is also aimed
to raise the productivity within the available resources.
Hence, to increase productivity we want to make this ratio of output to inputs as large as possible. This can be
achieved by:
a) Either producing more output with the same inputs.
b) Or using fewer inputs for the same outputs.
MEASUREMENT OF PRODUCTIVITY
1) Partial Productivity→ It is the ratio of output to one class of input among many factors of production. For
example, labor productivity measures the productivity of labor. Similarly, material, machine, land and
capital productivities can be defined. Thus,
Output Output
Labor Productivity = Material Productivity =
Labor Input Material Input
Output
Capital Productivity = and so on
Capital Input
2) Total Factor Productivity→ It is the ratio of net output to the sum of associated labor and capital inputs.
Net output means output minus material, capital, energy and other input expenses. Thus,
Net Output [Output – (material + capital + energy + other input expenses)]
Total Factor Productivity =
5
 Labor inputs + Capital inputs
3) Total Productivity→ It is the ratio of total output to the sum of all input factors. Thus, it represents the
joint impact of all the input factors in producing the output.
Total Tangible output
Total Productivity =
Total Tangible inputs
PRODUCTIVITY INDEX
Productivity index is used to compare the productivity during the current year with the productivity during the
base year. Base year is any year which the company uses for comparative study.
Productivity during the current year
Productivity Index =
Productivity during the base period
The three major sources of information for constructing various types of productivity index are:
a) Product Identification Information→ The product catalogs and drawings serve to provide a framework
for identifying the different kinds of products prior to weighting each kind of output in the mix. Only after
proper weighting the outputs can be aggregated.
b) Accounting Information→ Depending on the sophistication of the accounting system in use, the weighting
of each kind of output may or may not be feasible from accounting records alone. With a detailed cost
accounting system, having data of allocating labor, material, and overhead costs to each kind of product, all
the required information may be available.
c) Work Measurement Information→ It refers to the use of any technique to determine the amount of labor
required to produce each kind of output in a current & base period.
Example 1 Find the partial productivity, total factor productivity, and total productivity for a company for
which the following data is available: Output = 15,000, Labor input = 4,500, Material input = 3,000,
Capital input = 4,500, Energy input = 1,500, Other input expenses = 750.
Solution Output 15000
Labor Productivity = = = 3.3
Labor input 4500
Output 15000
Material Productivity = = = 5.0
Material input 3000
Output 15000
Capital Productivity = = = 3.3
Capital input 4500
Output 15000
Energy Productivity = = = 10.0
Energy input 1500
Output 15000
Other Expenses Productivity = = = 20.0
Other expenses input 750
Net Output [Output – (material + capital + energy + other input expenses)]
Total Factor Productivity =
Labor inputs + Capital inputs
15000 – (3000 + 4500 + 1500 + 750) 5250
Total Factor Productivity = = = 0.583
4500 + 4500 9000
Total Tangible output 15000 15,000
Total Productivity = = = = 1.05
6
 Total Tangible inputs 4500+3000+4500+1500+750 14250
Example 2 Products X and Y are being manufactured by a company using materials A and B. Product X is
expected to sell at 75 per unit and product Y at 35 per unit. The operating data is given below:
Material A Material B
Output X 200 units 400 units
Output Y 300 units 200 units
Quantity of raw material usage 1000 kg 1000 kg
Labor usage 300 man-hours 250 man-hours
Electric energy consumption 1000 kWh 1500 kWh
Cost of raw material/kg 22 33
Labor cost per man hour 10 10
Electric Energy/kw hr 2 2
Compare the productivity of material, labor, and electrical energy in using materials A and B. Comment on the
relative advantage of using either of the materials.

Solution Sales value of output with material A

= Output of product X in units × rate per unit of X + Output of product Y in units × rate per unit of Y
= 200 × 75 + 300 × 35 = 15,000 + 10,500 = 25,500
Sales value of output with material B
= Output of product X in units × rate per unit of X + Output of product Y in units × rate per unit of Y
= 400 × 75 + 200 × 35 = 30,000 + 7,000 = 37,000

The partial productivity of different factors of production is as follows:

S. No. Productivity (type) Material A Material B
Productivity of raw materials
Sales value of output 25,500 37,000
1
= = 1.16 = 1.12
Value of raw material used 1000 × 22 1000 × 33
Productivity of Labor
Sales value of output 25,500 37,000
2
= = 8.5 = 14.80
Value of labor used 300 × 10 250 × 10
Productivity of energy
Sales value of output 25,500 37,000
3
= = 12.75 = 12.33
Value of electrical energy used 1000 × 2 1500 × 2
Hence, we see that the productivities at (1) and (3) by using either material A or B are nearly the same. If labor
is the key factor, use of material B is better as it yields higher productivity, i.e., 14.8 > 8.5.
PURPOSE AND BENEFITS OF INCREASING PRODUCTIVITY
(1) For Management
a) To earn good profit because of reduction in costs.
b) To sell more, to earn profit.
c) To have better utilization of resources.
d) To stand better in the market.
e) Provide overall prosperity and reputation of the company.
(2) For Workers
a) Higher Wages.
b) Better working conditions, improved morale.
7
 c) Higher standard of living.
d) Job security and satisfaction.
(3) For Consumers
a) Better quality of goods at reduced prices which help to raise their standard of living.
b) More satisfaction.
(4) To Government
a) Higher profits earned by factories will bring more revenue to the government by taxation.
b) Export trades may develop bringing more foreign exchange to the nation.
c) It helps to increase the welfare of the nation and development of national economy.
d) It helps better utilization of resources of the nation.
e) It increases per capita income.
f) Development of the nation.
FACTORS AFFECTING PRODUCTIVITY
1) Technological Development→ Technical factors including the degree of mechanization, technical know-
how, raw materials, layout and the methods and techniques of work, determine the level of technological
development in any industry. The principal factors in technological development affecting productivity are –
Size of the Plant, Research & Development, Plant & Job Layout, Machine & Equipment Design, Production
Processes, Power, Raw Materials, etc.
2) Individual Factors→ Individual factors such as knowledge, skill and attitude also affect the productivity of
industry. Knowledge is acquired through training, education and interest on the part of learner. Skill is
affected by aptitude, personality, education, experience, training, etc. Increased knowledge, skill and
aptitude certainly increase the productivity.
3) Organization Factors→ Organization factors include various steps taken by the organization towards
maintaining better industrial relations such as delegation and decentralization of authority, participative
management, workers‘ participation in management, organizational efficiency, proper personnel policies
relating to selection, placement, promotion, wage salary levels, incentives, merit rating, job evaluation,
training and provision for two-way communication, supervision, etc.
4) Work Environment→ The importance of proper work environment and physical conditions on the job has
been emphasized by industrial psychologists and human engineers. Better work environment ensures the
greatest ease at work through better ventilation and light arrangement, improved safety devices, reduction in
noise, introducing suitable rest-pause, etc.
5) Natural Factors→ Physical, geographical and climatic conditions influence the productivity at large.
Abundance of natural resources affects the productivity and similarly climate affects the efficiency of
workers to a great extent.
6) Managerial Factors→ The industrial productivity is influenced very much through managerial ability and
leadership. The managerial ability of utilizing the available resources to the maximum, organizing capacity,
foresightedness, decision-making ability and entrepreneurship are certain factors that contribute to
productivity.
7) Government Policy→ Government policies towards industry also contribute to industrial productivity.
Taxation policy, financial and administrative policy, tariff policy and protection policy affect the
productivity to a large extent.
METHODS/TECHNIQUES OF INCREASING PRODUCTIVITY
1) Proper Use of Materials→ Industries in which the cost of raw material is a big percentage of the cost of
finished goods, higher productivity can be achieved through proper use of materials, i.e., by reducing scrap.
Productivity of materials can be also be increased by using correct process, properly trained workers,
suitable material handling and storage facilities and proper packaging.
2) Proper Utilization of Labor→ A little change in the design of component parts, so as to facilitate final
assembly, can increase the number of products assembled per day with the same amount of labor. Work
methods, if improved through work study techniques, can substantially increase the rate of production.
8
3) Proper use of Plant Equipment and Machinery→ Productivity can be increased through the use of
improved tools, simple attachments and other devices. Total production times can be cut short considerably
by improving machine setting up methods, thereby reducing set-up times. Proper maintenance will avoid
sudden breakdown and add to the productivity.
4) Proper Utilization of Land & Buildings→ A suitable plant layout can accommodate more machinery in
the same space and thus raise productivity. Proper orientation, construction and inside conditions of a
building definitely affect productivity.
5) Improved Working Conditions→ Bad working conditions force the workers to take more rest. Heating,
ventilation, lighting, color, noise level, personal comfort, etc., will have their own effect on productivity.
Good working conditions enable the workers to work efficiently to raise productivity.
6) Method Study→ Method study is a technique to simplify the job and develop more economical methods of
doing it. By method study, layout may be improved. The wasted movements caused due to bad layout can
be eliminated.
7) Operator Training→ Through training or re-training of workers, sound and uniform working methods can
be ensured. Operator training reduces work content due to bad working methods.
8) Material Control→ Irregular supply of materials may cause idle time of men and machines. Material
control ensures right type of material, at right time, in right quantities and at competitive prices.
9) Incentives→ In general, workers will not produce on their own upto their capacity. The workers‘ interest in
increased production can be stimulated only by rewards that satisfy them. Incentive wage system (amount
earned is dependent on the production) arouses interest in an employee to produce more.
10) Safety→ Unsafe conditions and unsafe acts cause accidents. Accidents results in loss of time. Safety
measures will reduce ineffective time due to accidents.
PRODUCTION TECHNOLOGY
Production technology involves in producing goods with the help of an efficient management, utilizing land,
labor, machines, capital and materials. A production system constitutes an efficient process with an organized
procedure for accomplishing the transformation of input elements to useful output products.
In any production process, there is an organized procedure to produce a unit of output from the several types of
inputs as such materials, labor, machines, facilities, energies, information, and technology.
TYPES OF PRODUCTION TECHNOLOGY

Production Process

Flow or Continuous Production Intermittent Production

Mass Process Assembly Job Batch

Production Production Lines Production Production

Analytical Synthetic
Production Production

1) Flow or Continuous Production→ It is most useful for product of repetitive nature. Each work is passed to
the next stage immediately after the previous operation is completed without waiting for the finishing of
work as a total batch. Since, the whole system is balanced, any fault or error at a particular stage affects not
only that stage but also all other stages in the flow line.
9
 Characteristics of Flow Production
i) Machines & equipments are arranged according to functional layout pattern.
ii) Special purpose automatic machines are required to perform standardized operations.
iii) The volume of output is generally large (mass production) and goods are produced according to demand.
iv) Fixed path materials handling equipment is used because of the predetermined sequence of operations.
v) Machines capacities are balanced so that materials are fed at one end of the process and the finished
product is received at the other end.
Types of Flow Production
Flow production can be of following types:
a) Mass Production→ It refers to the manufacturing of standardized parts or components on a large scale.
Standardization of materials, machines, products and processes is the basic characteristics of mass
production. Items are produced in huge quantity and much emphasis is not given to consumer‘s order. In
this type, one type of product is produced at a time and planning & scheduling of the production is done in
advance. Mass production system is employed when production is carried out without interruption. For
example, automobiles plant, electronics industry type industry, electricals, etc.
Merits of Mass Production
i) There is a smooth flow of materials from one work station to another work station.
ii) There are small Work-in-Progress (WIP) inventories because output of one becomes input of the other
process.
iii) Closely spaced work station reduces material handling.
iv) Less storage space for temporary storage and WIP.
Demerits of Mass Production
i) One machine failure results in a stoppage of the whole operation following it.
ii) Production speed is determined by the slowest machine.
iii) Mass production requires general supervision rather than specific supervision.
b) Process Production→ In this, various processes are inter-linked and production is carried on
continuously through a uniform and standardized sequence of operations. This type of production is used
in bulk processing of those products whose demand is continuous like petroleum, chemical, medicines,
soaps, etc. Single raw material can be transformed into different kinds of product or many raw materials
can be transformed into one product. It involves two types of processes:
i) Analytical Process→ Here, a raw material is broken down into different products. For example, crude
oil is analyzed into gas, petrol, kerosene, diesel oil, etc.
Gas
Raw Material Petrol
Crude Oil Kerosene
Diesel Oil
ii) Synthetic Process→ It involves the mixing of two or more materials to manufacture a product. For
example, lauric acid, myristic acid, plasmitic acid, stearic acid, linoleic acids are synthesized to
manufacture soap.
Lauric Acid
Myristic Acid Finished Product (Soap)
Plasmitic Acid
Stearic Acid
Linoleic Acid
b) Assembly Lines→ It was developed in the automobiles industry in USA. Here, two or more components
are combined to manufacture a finished product. It is particularly useful when a limited variety of similar
products is to be produced on a mass scale or in fairly large batches on a continuous basis.
10
 INPUT I1 Parts 1

I2I3
I3 Parts 2
Finished
I4
Product
I5 Parts 3
I6

2) Intermittent Production→ Here, the production is not continuous and is designed only when it is required.
There is not a single procedure and the production usually is not uniform and the basic product design
changes from time to time. The facilities are flexible to adjust production according to the order or time.
Characteristics of Intermittent Production
i) General Purpose machines and equipment are used so as to adapt to a wide variety of operations.
ii) A wide variety of products are produced.
iii) The flow of production is intermittent not continuous.
iv) No single sequence of operations is used and adjustments are made after a certain interval to suit
different jobs or batches.
v) The volume of production is generally
vi) Small.

Types of Intermittent Production

a) Job Production→ Job or ‗make complete‘ production is the system of manufacturing a single complete
unit by an operator or a group of operators, i.e., bridge building, dam construction, ship building, etc.
Here, whole production is considered as one operation and work is completed on each product before
passing on to the next. System requires highly skilled labor and high capital investments. Goods are
produced to definite customer‘s orders. Continuous demand and manufacturing depend on the receipt of
orders.
Characteristics of Job Production
i) A wide range of general-purpose machines like grinder, drill press, sharpener, etc. are used.
ii) Whole project is taken as a single operation.
iii) The product manufactured is customized.
iv) Volume of output is generally less.
v) Versatile and skilled labor is needed.
vi) High capital investment is required.
vii) Firms‘ can offer the ‗personal touch‘ which some customers prefer.
viii) Quality tends to be very high as workers are skilled and well-motivated.
ix) It is expensive method of production as workforce is skilled.
x) A wide range of tools, machines and equipment is needed which is expensive.
b) Batch Production→ Production schedule can be made according to specific order or on the basis of
demand forecast. The items are produced in lots or batches. New batch is undertaken for production only
when the work on all items of a batch is completed. After the production of one batch, the plant and
machines become available to other batch of similar type of production. More specialized labor and low
investment is needed. No schedule is prepared in advance and items are produced for definite customers
and not for inventories. This system is adopted by some of the industries like chemical industry,
electronics instrument, machine tools, printing press, etc.
Characteristics of Batch Production
i) Use of specialized skills.
11
 ii) Possibility of high equipment utilization.
iii) Fewer machines are required, since machine utilization is better.
iv) Specialized supervision is possible.
v) Generally, the production time is longer.

PLANT LOCATION
Plant location refers to the choice of region and the selection of a particular site for setting up a business or
factory. The location of plant can have a very marked effort on the success or otherwise of a commercial
venture. The guiding principle is that the plant should be located where the cost of production and distribution
of products are a minimum bearing in mind factors such as space for future expansion and general amenities of
the district. It is convenient to list the more important factors influencing plant location as follows.
1. Marketing Area: The location of the plant can be suitably selected depending on the availability of the
product in that area. If the market is close by the plant the transportation costs can be reduced to a large
extent. Since the product is a solid the cost of transportation has to done using trucks. If the customer is very
close to the plant the product can be transported using conveyers.
2. Raw Material Supply: The availability and price of the raw material is also a key component to determine
the plant location.
3. Transport: The transport of material to and from the plant wills a prime factor to determine the location of
the plant. It is always preferred that the plant has all the facility of all the three modes of transport (Rail,
road and waterway).
4. Availability of labour: Labour is necessary from the construction phase of the plant to the production
phase. The location of the plant should be such that there is availability of human resource around the area.
Usually the skilled laborers are picked up from outside the site area. But the unskilled laborers are also in
need.
5. Availability of Utilities: The process requires a large quantity of water for cooling and also for the
emergency requirements of the plant. Therefore it is always essential that there is a source of water near the
plant. Rivers are generally preferred as a source of water. Power is another major utility. The power supply
to the plant should be undisturbed. All most all the equipments require power to work. It is always
preferable to generate the power required to run the plant.
6. Effluent Disposal: The waste that is produced is generally in the form of liquid. The effluents are disposed
generally to the sea. Therefore there should be a provision for this kind of disposal.
7. Land: Sufficient suitable land must be available for the proposed plant for future expansion. The land
should be ideally flat, well drained and have suitable load bearing characteristics.
8. Climate: Adverse climate conditions at a site will increase costs. Abnormally low temperatures will require
the provision of additional insulation and special heating for equipments and pipe runs. Stronger structure is
necessary in locations subject to high winds.
9. Political and Strategic Considerations: Capital grants concessions and other inducements are often given
by governments to direct new investment to preferred locations such as areas of high unemployment. The
availability of such grants can be the overriding consideration in site selection. The site is selected on the
basis of availability of raw materials and demanding markets.
NEED FOR SELECTION OF LOCATION
The need for the selection of the location may arise under any of the following conditions:
1. When the business is newly started.
2. The existing business unit has outgrown its original facilities and expansion is not possible; hence a new
location has to be found;
3. The volume of business or the extent of market necessitates the establishment of branches;
4. A lease expires and the landlord does not renew the lease; and
5. Other social or economic reasons; for instance, inadequate labor supply, shifting of the market etc.
LOCATIONAL ANALYSIS
12
Location analysis is a dynamic process where entrepreneur analyses and compares the appropriateness or
otherwise of alternative sites with the aim of selecting the best site for a given enterprise. It consists the
following:
1. Demographic Analysis: It involves study of population in the area in terms of total population (in no.), age
composition, per capita income, educational level, occupational structure etc.
2. Trade Area Analysis: It is an analysis of the geographic area that provides continued clientele to the firm.
He would also see the feasibility of accessing the trade area from alternative sites.
3. Competitive Analysis: It helps to judge the nature, location, size and quality of competition in a given trade
area.
4. Traffic analysis: To have a rough idea about the number of potential customers passing by the proposed
site during the working hours of the shop, the traffic analysis aims at judging the alternative sites in terms of
pedestrian and vehicular traffic passing a site.
5. Site economics: Alternative sites are evaluated in terms of establishment costs and operational costs under
this. Costs of establishment is basically cost incurred for permanent physical facilities but operational costs
are incurred for running business on day to day basis, they are also called as running costs.
LOCATION METHODS
Equal Weights Method: In it equal weights are assigned to different factors (F) and the sites(S) are evaluated
among the factor scale. The sites were assigned ratings between 0-10 points against each factor. The sum of the
site ratings was used to compare it with the other sites.

Factors S1 S2 S3 S4
F1 3 6 8 2
F2 4 5 9 3
F3 7 2 6 3
Sum of Site
14 13 23 8
Ratings
From the matrix, we can say site 3 has the highest rating (23), and deserves to be chosen.
Variable Weights Method: In this method variable weights are assigned to each factor and sites are evaluated
along the factor scale. For instance, factor F1 may toke 400 points, factor F2 300 points and factor F3 100
points. The scope of each site is jotted, out of maximum possible points assigned for that factor.

Maximum
Factors S1 S2 S3 S4
Points
F1 400 300 350 350 200
F2 300 150 200 150 100
F3 100 50 75 80 40
Sum of Site
500 625 580 340
Ratings
From the matrix, we can say site 2 has the highest rating (625), and deserves to be chosen.
Location Break-even Analysis: Break-even charts are drawn for different locations to compare the sites. Fixed
costs, variable costs and revenue/output are taken into account to do so. Mathematically, Break-even volume is
Fixed Cost

Revenue/Unit – Variable cost/Unit

Factor Point Rating Method: This is the most widely used of the general location techniques. In this method,
factor rating is used to evaluate alternative locations.
13
The steps involved are:
1. List the most relevant factor in the location decision.
2. Rate each factor (say from1 for very low and to 5 for very high) according to its relative importance, i.e.
the higher the rating the more important is the factor.
3. Rate each location (say 1 for very low and to 10 for very high) according to its merits on each factor.
4. Compute the product of ratings by multiplying the factor rating by the location rating of each factor.
5. Compute the sum of the product of ratings for each location.
Factor Rating & Location Ratings for Location Alternatives
Factor Location Rating Product of Rating
Factor
Rating Location A Location B Location A Location B
Tax Advantages 4 8 6 32 24
Suitability of labour skill 3 2 3 6 9
Proximity to customers 3 6 5 18 15
Proximity to suppliers 5 2 4 10 20
Adequacy of water 1 3 3 3 3
Receptivity of 5
4 3 20 15
community
Quality of educational
4 1 2 4 8
system
Access to rail and air
3 10 8 30 24
transportation
Suitability of climate 2 7 9 14 18
Availability of power 2 6 4 12 8
Total Score 149 144
Since the total score for location A is higher than that of location B, Location A is the choice.
PLANT LAYOUT
Plant layout refers to the physical arrangement of production facilities. It is the configuration of departments,
work centres and equipment in the conversion process. It is a floor plan of the physical facilities, which are used
in production.
According to Moore ―Plant layout is a plan of an optimum arrangement of facilities including personnel,
operating equipment, storage space, material handling equipment and all other supporting services along with
the design of best structure to contain all these facilities‖.
According to Riggs, “the overall objective of plant layout is to design a physical arrangement that most
economically meets the required output – quantity and quality.”
According to J. L. Zundi, “Plant layout ideally involves allocation of space and arrangement of equipment in
such a manner that overall operating costs are minimized.”
OBJECTIVES OF PLANT LAYOUT
The primary goal of the plant layout is to maximise the profit by arrangement of all the plant facilities to the
best advantage of total manufacturing of the product.
The objectives of plant layout are:
1. Streamline the flow of materials through the plant.
2. Facilitate the manufacturing process.
3. Maintain high turnover of in-process inventory.
4. Minimise materials handling and cost.
5. Effective utilisation of men, equipment and space.
6. Make effective utilisation of cubic space.
14
7. Flexibility of manufacturing operations and arrangements.
8. Provide for employee convenience, safety and comfort.
9. Minimize investment in equipment.
10. Minimize overall production time.
11. Maintain flexibility of arrangement and operation.
12. Facilitate the organizational structure.
PRINCIPLES OF PLANT LYOUT
1. Principle of integration: A good layout is one that integrates men, materials, machines and supporting
services and others in order to get the optimum utilisation of resources and maximum effectiveness.
2. Principle of minimum distance: This principle is concerned with the minimum travel (or movement) of
man and materials. The facilities should be arranged such that, the total distance travelled by the men and
materials should be minimum and as far as possible straight line movement should be preferred.
3. Principle of cubic space utilisation: The good layout is one that utilise both horizontal and vertical space.
It is not only enough if only the floor space is utilised optimally but the third dimension, i.e., the height is
also to be utilised effectively.
4. Principle of flow: A good layout is one that makes the materials to move in forward direction towards the
completion stage, i.e., there should not be any backtracking.
5. Principle of maximum flexibility: The good layout is one that can be altered without much cost and time,
i.e., future requirements should be taken into account while designing the present layout.
6. Principle of safety, security and satisfaction: A good layout is one that gives due consideration to workers
safety and satisfaction and safeguards the plant and machinery against fire, theft, etc.
7. Principle of minimum handling: A good layout is one that reduces the material handling to the minimum.
FACTORS INFLUENCING LAYOUT
While deciding his factory or unit or establishment or store, a small-scale businessman should keep the
following factors in mind:
1. Factory building: The nature and size of the building determines the floor space available for layout. While
designing the special requirements, e.g. air conditioning, dust control, humidity control etc. must be kept in
mind.
2. Nature of product: product layout is suitable for uniform products whereas process layout is more
appropriate for custom-made products.
3. Production process: In assembly line industries, product layout is better. In job order or intermittent
manufacturing on the other hand, process layout is desirable.
4. Type of machinery: General purpose machines are often arranged as per process layout while special
purpose machines are arranged according to product layout
5. Repairs and maintenance: machines should be so arranged that adequate space is available between them
for movement of equipment and people required for repairing the machines.
6. Human needs: Adequate arrangement should be made for cloakroom, washroom, lockers, drinking water,
toilets and other employee facilities, proper provision should be made for disposal of effluents, if any.
7. Plant environment: Heat, light, noise, ventilation and other aspects should be duly considered, e.g. paint
shops and plating section should be located in another hall so that dangerous fumes can be removed through
proper ventilation etc. Adequate safety arrangement should also be made.
Thus, the layout should be conducive to health and safety of employees. It should ensure free and efficient flow
of men and materials. Future expansion and diversification may also be considered while planning factory
layout.
TYPES OF LAYOUT
As discussed so far the plant layout facilitates the arrangement of machines, equipment and other physical
facilities in a planned manner within the factory premises. An entrepreneur must possess an expertise to lay

15
down a proper layout for new or existing plants. It differs from plant to plant, from location to location and from
industry to industry. But the basic principles governing plant layout are more or less same.
As far as small business is concerned, it requires a smaller area or space and can be located in any kind of
building as long as the space is available and it is convenient. Plant layout for Small Scale business is closely
linked with the factory building and built up area.
From the point of view of plant layout, we can classify small business or unit into three categories:
1. Manufacturing units
2. Traders
3. Service Establishments
MANUFACTURING UNIT
In case of manufacturing unit, plant layout may be of four types:
a) Product or line layout
b) Process or functional layout
c) Fixed position or location layout
d) Combined or group layout
PROCESS LAYOUT
Process layout is recommended for batch production. All machines performing similar type of operations are
grouped at one location in the process layout e.g., all lathes, milling machines, etc. are grouped in the shop will
be clustered in like groups.
Thus, in process layout the arrangement of facilities are grouped together according to their functions. The flow
paths of material through the facilities from one functional area to another vary from product to product.
Usually the paths are long and there will be possibility of backtracking.
Process layout is normally used when the production volume is not sufficient to justify a product layout.
Typically, job shops employ process layouts due to the variety of products manufactured and their low
production volumes.

Advantages
1. In process layout machines are better utilized and fewer machines are required.
2. Flexibility of equipment and personnel is possible in process layout.
3. Lower investment on account of comparatively less number of machines and lower cost of general purpose
machines.
4. Higher utilisation of production facilities.
5. A high degree of flexibility with regards to work distribution to machineries and workers.
6. The diversity of tasks and variety of job makes the job challenging and interesting.
7. Supervisors will become highly knowledgeable about the functions under their department.

16
Limitations
1. Backtracking and long movements may occur in the handling of materials thus, reducing material handling
efficiency.
2. Material handling cannot be mechanised which adds to cost.
3. Process time is prolonged which reduce the inventory turnover and increases the in process inventory.
4. Lowered productivity due to number of set-ups.
5. Throughput (time gap between in and out in the process) time is longer.
6. Space and capital are tied up by work-in-process.
Suitability: Process layout is adopted when
1. Products are not standardized
2. Quantity produced is small
3. There are frequent changes in design and style of product
4. Job shop type of work is done
5. Machines are very expensive
Thus, process layout or functional layout is suitable for job order production involving non-repetitive processes
and customer specifications and non standardized products, e.g. tailoring, light and heavy engineering products,
made to order furniture industries, jewelry.
PRODUCT LAYOUT
In this type of layout, machines and auxiliary services are located according to the processing sequence of the
product. If the volume of production of one or more products is large, the facilities can be arranged to achieve
efficient flow of materials and lower cost per unit. Special purpose machines are used which perform the
required function quickly and reliably.
The product layout is selected when the volume of production of a product is high such that a separate
production line to manufacture it can be justified. In a strict product layout, machines are not shared by different
products. Therefore, the production volume must be sufficient to achieve satisfactory utilization of the
equipment.

Advantages
1. The flow of product will be smooth and logical in flow lines.
2. In-process inventory is less.
3. Throughput time is less.
4. Minimum material handling cost.
5. Simplified production, planning and control systems are possible.
6. Less space is occupied by work transit and for temporary storage.
7. Reduced material handling cost due to mechanized handling systems and straight flow.
8. Perfect line balancing which eliminates bottlenecks and idle capacity.
9. Manufacturing cycle is short due to uninterrupted flow of materials.
10. Small amount of work-in-process inventory.
11. Unskilled workers can learn and manage the production.
Limitations

17
1. A breakdown of one machine in a product line may cause stoppages of machines in the downstream of the
line.
2. A change in product design may require major alterations in the layout.
3. The line output is decided by the bottleneck machine.
4. Comparatively high investment in equipments is required.
5. Lack of flexibility. A change in product may require the facility modification.
Suitability: Product layout is useful under following conditions:
1. Mass production of standardized products
2. Simple and repetitive manufacturing process
3. Operation time for different process is more or less equal
4. Reasonably stable demand for the product
5. Continuous supply of materials

Therefore, the manufacturing units involving continuous manufacturing process, producing few standardized
products continuously on the firm‘s own specifications and in anticipation of sales would prefer product layout
e.g. chemicals, sugar, paper, rubber, refineries, cement, automobiles, food processing and electronics etc.
COMBINATION LAYOUT
A combination of process and product layouts combines the advantages of both types of layouts. A combination
layout is possible where an item is being made in different types and sizes. Here machinery is arranged in a
process layout but the process grouping is then arranged in a sequence to manufacture various types and sizes of
products. It is to be noted that the sequence of operations remains same with the variety of products and sizes.

FIXED POSITION LAYOUT

This is also called the project type of layout. In this type of layout, the material, or major components remain
in a fixed location and tools, machinery, men and other materials are brought to this location. This type of
layout is suitable when one or a few pieces of identical heavy products are to be manufactured and when the
assembly consists of large number of heavy parts, the cost of transportation of these parts is very high.

Advantages
The major advantages of this type of layout are:
18
1. Helps in job enlargement and upgrades the skills of the operators.
2. The workers identify themselves with a product in which they take interest and pride in doing the job.
3. Greater flexibility with this type of layout.
4. Layout capital investment is lower.
Suitability: The fixed position layout is followed in following conditions
1. Manufacture of bulky and heavy products such as locomotives, ships, boilers, generators, wagon building,
aircraft manufacturing, etc.
2. Construction of building, flyovers, dams.
3. Hospital, the medicines, doctors and nurses are taken to the patient (product).

19